This article was recently published in Russian media. We found it truly informative and impressive so we decided to translate it for our English-speaking readers. Our apologies if the quality of the translation suffers – we did our best.
Vladislav Inozemtsev, Doctor of Economics, Director of the Center for Post-Industrial Studies
Slon.ru, translated by Moskvaer
One often hears that the Russian economy is “seriously ill.” Those, who talk about it, usually look for the causes of this disease and offer different treatments ranging from surgery to modern shamanism. Sometimes I have also been involved in such debates, but today I do not want to delve into the history and speculate about what should be. This text is just a commentary on ten simple and obvious figures. Each reader is quite able to draw conclusions on their own.
66.3% – the amount that the Russian export of oil, petroleum products and natural gas fell from 2013 to 2014. In their production, processing and transportation 1.34 million people were employed, or 0.9% of Russians. The rest – en masse – successfully parasitized on oil and gas revenues, which were providing more than half of all federal revenues.
It should be noted that this figure is the highest in the history of our country: even during the Soviet Union’s decline in 1989 it was “only” 36.9%, on the eve of default in 1998 – 42.8%, by the end of the first presidential term of Vladimir Putin – 57.7%.
Yes, we are still quite far from Venezuela (94.2%) and Nigeria (97.2%), but the United Arab Emirates, a “single-industry” state in former times, reduced the share of oil and gas exports from more than 80% to 53.3% in a quarter of a century. And in Brazil, which President Cardoso once described as uma Rusia tropical, hydrocarbons make up 9.8% of exports.
10.6 times – the amount that the Russian ruble depreciated against the dollar over the past 17 years, after the country emerged from a long period of economic recession and galloping inflation.
It is significant that most of this time was marked by relatively strong economic growth, the rate of which exceeds, for example, South Korea and Eastern Europe.
However, in Korea, from the pre-crisis level in 1997, the Won fell by only 36%, and the currencies of our western neighbors fluctuated along with the rate of the Euro. The explanation that the ruble is “tied” to oil does not help: in Saudi Arabia a fixed exchange rate to the dollar established since 1986, is holding despite the volatility in the commodities market.
In this respect we are similar not to the leaders of the oil market but to the weakest of the players on it – Venezuela (official devaluation of the bolivar in 1998 to 7.5 times) and Nigeria (where the Naira had fallen 9.2 times in price).
Along with the ruble, living standards of citizens has also fallen. The average salary in August 2015, converted into dollars at market exchange rates ($ 525) conform to the figures in June 2007. Eight recent years simply flowed into sand.
20.4% – that was the share of gross capital formation in GDP at the end of 2014. Comparing with the index of the Soviet Union in the mid-1980s period, that level fell by more than half.
Namely the decumulation of former industrial and infrastructural potential allowing to “save” 12-13% of GDP each year (up to 10 trillion rubles), provides a relatively high standard of living in today’s Russia. Its contribution to the well-being is significantly higher than gain provided in the 2000s by the price of oil rising.
However, the flip side is well known: in the post-Soviet era there have been more than 11 thousand objects of industrial purpose abandoned; over the past 10 years the country has built only 390 km of railways and 2,700 km of roads; no new refineries or a major enterprise producing modern electronics.
Russia, which respectively lags behind the US and Germany, per capita GDP at market prices, by 4.2 and 3.9 times, directs to the investing slightly larger share of GDP than America, and 1.3 times less than Germany. And there’s no point to compare to China: Russian share of investment is 2.4 times less.
2.1 times – is as many times service industries have outstripped the industrial sector by development over the period from 1997-2014. Between all countries that demonstrated a high GDP growth rate, Russia was the only one where the manufacturing industry has not acted as an engine of economic growth.
The drivers were financial services (an increase of 94% over 2000-2008 years), wholesale and retail trade (+ 132%), mobile telephony and Internet (+ 148%), and even catering.
Russia did not generate growth, but imported it by spending petrodollars for imported goods, borrowed technologies and the relatively primitive (by international standards) equipment for the development of the service sector. Massive de-industrialization of the country occurred as a result. If today the Western powers really wanted to paralyze Russia with sanctions, they should start with a ban of consumables for imported office equipment delivery – import substitution in this field would have taken years.
I should note: in Korea in the 1980s, the industry grew 2.3 times faster than the service sector. In China in the 2000s – by 1.8 times.
61% – is the proportion of foreign investment in Russia that came from … offshore jurisdictions. According to this indicator, we have no equal in the world – as well as on the amount of assets controlled in the country itself by companies registered in offshore zones.
Aside from these investments, the accumulated foreign investments in Russian economy amounted to 2015 January 1 $ 138.2 billion, or $ 958 per person, which is 13 times less than in deprived of all riches Estonia.
It would be okay if foreigners do not invest in Russia, but the fact is that it is Russian funds running away. According to official data, in 2014 the outflow of capital reached a record $ 151.5 billion – if you count them at the current market rate it is about 10 trillion rubles, or 12.6% of Russia’s GDP in 2015.
34.1% – the ratio of revenues to all level budgets to Russia’s GDP. The tax burden, as they call this figure, is 2.05 times more than China’s, 1.57 times more than Turkey’s, 1.34 times – more than the US, and almost equal to the Austria’s.
At the same time this figure does not take into account informal taxes and “social responsibility” of business. Collected funds are spent quite irrationally.
If the US federal budget puts 28% less funds to defense than to the healthcare, the Russian military appropriations in the federal budget in 2014 would exceed the costs of health care by 4.6 times.
Officials also did not forget themselves: in 2013, on the eve of the current crisis, Russia spent 850 billion rubles, or $ 26.7 billion for so called “General expenses” – more than the US spent for General Government in the same year ($ 25,9 billion ).
I am not even going to compare the size of the economies and standards of living in Russia and America – it is clear that Russian bureaucracy refers to the country just as its property.
798 points – at this level the RTS index closed on Friday, September 11, 2015. Thus, the market showed its assessment of the effectiveness of the Russian economy and the Russian state system. In 2008, at the peak of the rise, the indicator was 2488 points – and since then it has fallen by more than 67%. In the US over the same period, a basic S & P500 index rose by 35%, and the German DAX30 rose by 42%.
Now “Gazprom”, once the leader of the Russian economy, costs $ 49.7 billion – just half as much as McDonald’s. “Rosneft” is estimated at $ 39.1 billion – 29% less than the amount that in 2013 was paid by its talented managers for absorption of TNK-BP, which now dissolves in the state financial funnel.
0.15% – that was the share of patents granted by the European Patent Agency to the Russian applicants for scientific discoveries and inventions in 2014; the proportion of Russians among the authors of scientific publications in the world’s most cited scientific publications amounted to 2.1%.
88 – this is the number of dollar billionaires in Russia as of mid-February 2015. Together, they controlled the property comparable to the 34% of GDP of the Russian Federation. Assets of 537 US billionaires compared with the sum of less than 14% of GDP.
At the same time the average monthly salary, converted into dollars, decreased from May 2014 to August 2015 of 43.5%, while the number of people whose income does not reach the subsistence level reached by the summer of this year, 22.9 million people, or 16% of the total population.
The minimum amount of unemployment benefits in 2015 is defined for 850 rubles per month; for the care of a child under the age of 1.5 years – 2576 rubles per month, etc. These figures are an average of 12-16 times smaller than, for example, similar payments in France (where, by the way, there are almost twice less billionaires than in Russia).
71.1 years – according to official statistics, that is the average life expectancy in Russia. According to this indicator, we for the first time in the XXI century entered the hundred… most successful countries of the world in this regard, barely beating the Philippines, Indonesia and India. However, we are still at the level of African countries by life expectancy of men.
86% – this is the activity level of approval of Vladimir Putin as president of the Russian Federation in August 2015, according to the Levada Center.